October 29, 2021

News in Charts: Taking stock ahead of COP

by Fathom Consulting.

The UN’s upcoming climate conference, COP26, has been billed by many as the world’s last chance to agree the ambitious commitments required to limit global warming to +1.5°C above pre-industrial levels, the temperature increase which scientists agree would avoid the worst effects of climate change. Doing so will require deep cuts to global CO2 emissions, starting now, as highlighted by the chart below.

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Going into the conference, the costs of green technology have never been cheaper, and they have fallen fast in recent years. Indeed, since the Paris Agreement was signed in 2015, the cost of lithium-ion batteries used in electric vehicles has fallen more than 60%, while solar energy panels are 50% cheaper. The prices of offshore and onshore wind are down 48% and 38% respectively. The price of financial assets linked to the transition, such as the world renewable energy index and Tesla, the maker of electric cars, has increased significantly over the same period. Indeed, the World Bank estimates that electricity from renewables is often cheaper than fossil fuels. With taxation a political lead balloon in some places, the debate about how to best tackle climate change has shifted from making emissions more expensive (via taxation or regulation) to making green technology cheaper.

IN_HOUSE

At previous COP meetings the cost of low-carbon ways of doing things was more expensive than the status quo, but at COP26, green technologies that can be adopted at scale are now cheaper. Identifying the most promising new green technologies and figuring out how to bring down their costs even faster, and to deploy them at scale, will be among the topics discussed at the conference, especially at the session focused on science and innovation.

The fall in costs of technologies will be important for the decarbonisation efforts of emerging markets (EMs). As EMs industrialise and their economies grow, there will be upward pressure on their carbon footprints. But to keep 1.5°C within reach, the world does simply not have the carbon budget for them to keep increasing their emissions. Green technological solutions will therefore need to be deployed at scale, and at affordable prices, meaning that significant amounts of finance will need to be raised.

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At COP26, EMs like India, Indonesia and South Africa will be asked to set more ambitious emission-reduction targets. These EMs will, in turn, ask for more technological and financial assistance to help them achieve this. Therefore, a key goal at COP26 is for wealthy countries to come good on their pledge to provide more than US$100 billion of climate-related financing to emerging economies each year. According to a report by the OECD, in not one of the eleven years since this pledge was made has it been met.

While this US$100 billion is important, it is small change compared to the amount of financing required globally. Indeed, our analysis shows that tens of trillions of dollars, possibly more than a hundred, of capital expenditure will also be needed to finance the net zero transition globally. Huge pools of private capital are looking for a sustainable investment home, and in many cases, finance will be deployed without the need for any sort of government intervention. But market failures do exist in some instances, so targeted spending by the public sector, in both advanced and emerging markets, will be needed. There is a lot at stake at COP26, and achieving the stated goals of keeping 1.5°C alive appears hard. For more a more in-depth preview of COP26, please see our recent report publication.

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